First, we all change our names. Then we wait until very late at night, and we poke just our noses and one eye out through the curtains, and we look up and down the block, up and down the block. THEN WE RUN OUT AND THROW SOME STUFF IN THE CAR AND MOVE TO OHIO!
No, no, wait. That would be irresponsible. It's not so bad. Here's what it is. They forgot to put some money in the city employees pension fund. Just forgot. Bizzy, bizzy, bizzy. How much? Some money. Just think of it that way: some money.
It's $556 million! RUN FOR OHIO! LEARN FOREIGN ACCENTS! "I am surry, we are never hearink of this Dallitz town."
OK, let's calm down. It's not like it's $556 million that you and I have to pay right now. That number is the total amount the plan will be short over the next 30 years if nothing gets fixed. The amount it's short right away is much less. They'll let us make a payment. All we have to pay right now is...$20 million!
Let me just breathe here for a second, and then I'll break it down for you. Where to begin? You will recall that back in the late 1990s, former Mayor Ron Kirk, whose lovely and capable wife, Matrice, earned $500,000 by attending board meetings at a company owned by financier Tom Hicks, teamed up with then-City Manager John Ware, who eventually left city service to work for Mr. Hicks on "deals." Together, Kirk and Ware very effectively sold the idea that the city should give Hicks a $125 million taxpayer subsidy for the new sports arena that he and Ross Perot Jr. were building at the time.
And let me just pause and point out something very important: At no time was anything nasty ever proven about the mayor's wife getting hundreds of thousands of dollars from Hicks or about the Dallas city manager going to work for him right after dishing him $125 million of our money. So let's not hear a bunch of innuendo about it, OK?
RUN! RUN FOR OHIO! No, wait, I am so genuinely sorry--that just popped out. I have no idea why. You will recall, I am sure, that Kirk and Ware both assured us at the time that we could afford to flip Hicks 125 big ones, no sweat, without any kind of a tax increase or possible harm to our bond ratings.
Our credit rating at the time on bonds was almost the very best you could get, AAA+, and there was some concern it might be downwardly adjusted to STUPID++. (In fact, it's now AA.) The bond rating agencies look at the total value of taxable property and the total amount of the city's obligations to see how much ability the city has to pay off debt.
A key element in the sales pitch for the arena was the notion that the arena would be paid for with "new money" from auto rental and other "new taxes" and therefore would have no effect on the bond rating. The pension fund issue, by the same token, was dismissed as unrelated, since the pension fund is paid from other revenues.
It's not an argument that washes with one of the key experts who mediated the city's actuarial problems in the late '90s. Leonard R. Cargill Jr., an actuary who sits on the Texas Pension Review Board, says a thorough public debate on the arena subsidy--and on any other major expenditures the city was considering at the time--should have included a candid and thorough airing of the problems with the pension fund.
Cargill thinks it's misleading to speak as if major public obligations have no relation to each other. The ability of a local economy to generate tax revenues is not infinite, he says, and at least in theory, if you can use a new tax to give money away, you also could have used it to pay your debts and reduce other tax burdens.
"We're looking at huge pension increased costs," Cargill says. "City property taxes are going through the roof." Any new source of revenue could somehow be used to reduce the taxpayer's existing burden rather than giving the money away.
Randy Stalnaker, a member of the Dallas pension board, points out that the city's bond prospectus now includes a description of its efforts to solve the pension-fund underfunding issue. He takes that as proof that bond underwriters care about pension funds.
But Ware and Kirk managed to keep most of this out of public view when they were selling the arena deal and the Trinity River improvement plan to voters. Beginning in 1996, Ware had engaged in a long battle to silence members of the employee pension fund board and a new actuarial firm auditing the fund, which was warning that the pension fund didn't have enough money. Ware even demanded unsuccessfully that members of the board resign, and he tried to bring in new actuaries. He insisted the city should rely on the word of its former actuaries, who had always said everything was up to snuff.
An outcome of this battle was that in 1997 the former actuaries, W.F. Corroon and Sedgwick James of Illinois, agreed to pay the pension board $2.2 million to settle a claim for bad advice.
When Kirk and Ware told us we could give away $125 million without new taxes, we could have looked around and found ample evidence that something was amiss. Our Afghan system of streets, curbs, sidewalks, bridges, water mains and storm sewers might have given pause. But I guess those things are hard to quantify.
But money--that's tough to fudge. Towers Perrin, the new actuarial firm, warned that the employee pension fund was in danger of collapse. The state body that oversees public pension funds in Texas concurred and issued equally dire predictions.
But by 1997, Towers Perrin had decided it didn't want to play City Hall slime-ball in Dallas anymore. The firm resigned its position, giving the pension board high marks for integrity but giving City Hall the bird. "Really, it came down to a feeling that as long as we were involved, the city wasn't going to play ball and talk to the fund," an official of the firm told The Dallas Morning News.
Criticism is silenced. Public debate on underfunded pension fund ends. Three months later we give Hicks $125 million. We think we don't have to pay for it.
But here is the really devastating piece of the puzzle. The kind of shortfall people were predicting for the fund in the late 1990s was hugely mitigated by the record bull market on Wall Street. But even the big investment earnings were not enough. The fund was still headed for collapse.
Now think about the same deal after a record bear market. Get the picture? That's how you get to the projected total deficit of more than half a billion dollars that the Dallas City Council discussed at its briefing this week.
I wish I could tell you things are different now that we have a new mayor and a new drill team on the council. But in point of fact, I sat there listening to the council members who are supposed to be our fiscal conservatives--Mitchell Rasansky, in particular--and I kept thinking about idyllic small towns nestled in the Ohio River valley.
City Manager Ted Benavides was uncharacteristically blunt about what is needed: "I need 20 million bucks," he told the council more than once. Benavides said $20 million right now will be enough to plug the hole in the dike.
Assuming the market at least stays flat, then that $20 million, through the miracle of compound interest, will grow over time to fill the gap. But Benavides needs it all before the end of 2005.
And let me add another critical detail: In 1999, over the objections of their own union, city employees voted to tax themselves with a higher contribution to the fund in order to keep it whole. They pitched in when they were not legally required to do so.
And another detail. City employees do not get Social Security. The average city pension now is $1,700 a month, according to the pension board. According to the Social Security Administration's Web page, the average Social Security pension is $1,008 a month. So the city's pension fund puts a typical retiree ahead of a Social Security recipient by less than $700 a month--not much at all if you compare it with the retirement package of people lucky enough to qualify for Social Security plus a 401(k) with a good company match.
The city pension plan is not a rich deal. The employees kicked in. This is a fundamental matter of honor. We have to kick in. We got suckered on all that stupid stuff downtown in the late 1990s. That wasn't the fault of the people who mow our parks. That was our fault. We owe this money. And this will only get worse--much worse--the longer we take to pony up.
But Rasansky was spinning all kinds of arguments about how maybe we might not have to pay. And it seemed to me he was getting some traction with our mayor and certain other council members.
In particular, both Rasansky and the mayor spoke enthusiastically of changing the makeup of the city's pension board. They like the idea of putting "experts" on the board--people with financial credentials. But in fact, the last person who's supposed to be on that board is anybody with bright ideas about investments. The whole structure is designed to keep those types away from the nest egg and leave the investing to hired fund managers. I don't get how this idea differs from John Ware wanting to bump off the actuary. There are good reasons why the bosses aren't supposed to play business with the pension fund.
Rasansky thinks the guarantees made by these funds shouldn't be taken too seriously: "Madam Mayor...I don't think there's anybody naïve enough to think that they have a guarantee, even if they get Social Security from the United States."
I called him later, and he said, "Is the whole city of Dallas just working for the employees of City Hall?"
Interpret that as: "I don't want to pay." And, "I am going to tell my constituents that they should love me because I am going to get them out of paying."
The three on the council who most clearly spoke the language of fiscal responsibility on this were Don Hill, Leo Chaney and James Fantroy. Hill, in particular, said basically that if we do not meet this obligation, we will never be able to recruit quality people to work for the city again.
Bottom line? I don't hear it getting fixed. The stuff from Rasansky and others on the council is eerily like what we got from Kirk and Ware. It's all free money. Or maybe this is more like it: "Take from the city according to your needs, but pay according to your whims." Soviet party-hearty!
RUN!
